The Optical Market: A Health Check
As high-speed network infrastructure rollouts and datacenter builds continue, the optical components and systems sectors are delivering ever more efficient transport capabilities. Fueled by the continued migration to all-optical networks, the promise of 100G, and the increasing volume of data being shipped around the world's wide area networks, global investments are climbing. (See 100G Action Spurs Optical Optimism.)
So how's the optical transport market doing? And feeling?
Light Reading asked a number of industry leaders and analyst about what they saw in 2013 and what they're expecting in 2014. There were shining stars in 2013, as there will be in 2014, but also some pockets of the market that just aren't going to move.
Optical transport systems
According to Sterling Perrin, senior analyst at Heavy Reading , "optical transport is a tough market. It's competitive and there is nowhere near the growth of the past -- and we won't see that growth in the future. The area is fragmented, there are a lot of players and, while network traffic continues to grow rapidly, operator revenues can't keep pace. The mission of transport is to lower the cost-per-bit for operators, so the suppliers live in a world of constant price-cutting."
According to Perrin, what growth there is can be found in the core network transport market, which will outperform the overall market in the coming years. Heavy Reading expects the market for core optical transport system to grow from US$4.6 billion in 2013 to almost $5.9 billion in 2017. By contrast, the metro systems market is somewhat stagnant.
Table 1: Worldwide Optical Transport Revenue by Segment, 2012-2017
|In US$ millions||2012||2013||2014||2015||2016||2017||CAGR 2012-2017|
|Source: Heavy Reading|
Beneficiaries of the growing demand for 100G systems include the top four players -- Alcatel-Lucent (NYSE: ALU), Huawei Technologies Co. Ltd. , Ciena Corp. (NYSE: CIEN), and Infinera Corp. (Nasdaq: INFN) -- and, to a lesser extent, the next tier of vendors, including Cisco Systems Inc. (Nasdaq: CSCO), Coriant , and Ericsson AB (Nasdaq: ERIC).
"The strength of core networks accounts for the strength in North America, which grew 13% in 2013, faster than the 10% overall market growth. China is slowing, but still showing growth," says Perrin. "India is a wild card given the political situation over the past couple of years. I thought it would have done better in 2013, but at some point, it will be an opportunity," he adds. (See 'China Hockey Stick' to Sweep Through Optical.)
For the coming year, Perrin identifies a number of trends in components, including: continuing strength in 100G and core networks in general; flex grid or flex spectrum; and ROADMs, which are beginning to do well.
Finisar sees a bright light
For optical transport systems that employ WDM, there are a handful of key component suppliers, namely Finisar Corp. (Nasdaq: FNSR), JDSU (Nasdaq: JDSU; Toronto: JDU), CoAdna Photonics Inc. , and Nistica .
Jerry Rawls is exuberant when he talks about the progress of Finisar, where he is executive chairman. "2013 was an exciting year. It was the company's 25th anniversary and the first year ever that the company hit $1 billion in revenues," he says.
"The trend is to develop faster interconnects and optical transceivers for datacenters. Until recently, 1Gbit/s datacenters were copper, cat cable, RJ-45 jacks. In just three to four years, based on advances in speed, 1Gbit/s moved to 10Gbit/s, which is optical, not copper," Rawls explains.
Finisar is clearly expecting high demand, as it is expanding manufacturing, building a 400,000 sq. ft. facility in China, as well as other facilities for 10Gbit/s and 40Gbit/s. The latter will continue to show strength, according to Rawls, as the cloud datacenter transitions to 40Gbit/s. The company expects to see increasing demand from the US, China, and Europe.
As for the future, Rawls says the metro transport market isn't having much impact yet on a revenue basis, but as systems are launched for metro, accounting for 3x to 5x volume increases, that will likely trigger a new multi-year trend. Line cards will be optimized for metro, size, power, specs and cost, and lower cost for metro will drive business as well, Rawls believes.
And clearly, Finisar is gearing up for greater demand for 100G products. (See Finisar Buys Its 100G Buddy.)
On the subject of M&A, the Finisar man notes a shift in the optical equipment sector. "An interesting event was the privatization of NSN and Tellabs under Coriant by Marlin Equity. This was a private equity deal rather than a consolidation of systems companies. That's a new chapter of consolidation at the transport level," notes Rawls.
Next page: Datacenter drivers for NeoPhotonics, JDSU